We win ?22,000 for victim of mis-selling

A saver who was told to buy a high risk bond to help pay off her home loan has won more than £22,000 in compensation, thanks to Jobs & Money.

The case reveals how far an independent financial adviser was prepared to go for commission - nearly £1,500 for selling high income bonds whose value would collapse if share prices fell. The Financial Services Consumer Panel has heavily criticised methods used in selling these "precipice" bonds which promise high income but hide huge capital risks in small print.

And it also shows how financial advice firms can try to side-step responsibility for mis-selling by blaming victims. In this case, IFA firm Frizzell, subsequently part of Liverpool Victoria, stated the saver was used to taking big risks because she had bought a Derbyshire holiday home which she occasionally rented out.

Dr Jill Robson, a retired government employment psychologist, inherited £101,000 in 1998. Her first thought was to use £47,000 to clear her Northern Rock home loan. She wanted the balance to generate an income until 2004, when she would draw her pensions.

"I knew what I wanted," says Dr Robson, 58. "I am a cautious investor. I was prepared to take some risks with shares but only for a small part of my savings."

She went to see a Frizzell adviser. Dr Robson agreed his priorities for her: security of capital; easy emergency access to funds; and minimum tax liability. But the eventual advice ignored the first two points.

"I wanted income until 2004 when I would qualify for my civil service and state pensions. But I could easily earn some more if I had to with my small business, Living Space, which gives advice on domestic space and design," says Dr Robson, from Sheffield.

Frizzell told her to forget paying off her loan and to invest £49,000 into high income bonds with Scottish Mutual and Zurich. These guaranteed her 8% and 10% respectively, tax-free for five years. But she could lose up to 58% of her capital on maturity if there was a moderate fall in stock market indices.

"His idea was for me to remortgage to a lower rate for five years, use the income from the bond to cover loan payments, repay it from the capital, and have some spending money. I asked about risks - he said they were very remote and not very large. My concept of paying off the mortgage was dismissed."

Dr Robson's preferred course of action would not have generated commission. But the bonds earned Frizzell £1,410 in commission.

In October 2001, Dr Robson realised she would lose £21,300 and be unable to repay her mortgage. Frizzell advised holding on for an upturn. "They fell further. In September 2002, I made a formal complaint to Liverpool Victoria, which had bought Frizzell. I told them I had been mis-sold," she says. Three months later, Liverpool Victoria rejected her complaint. Effectively, she was blamed for her loss. Despite Dr Robson refuting Liverpool Victoria's points line by line, the IFA firm stuck to its guns. Dr Robson sent her file to us.

We told Liverpool Victoria that the first duty of any financial adviser is to clear debt; and that this had been spelt out in Financial Ombudsman decisions. And we said that Frizzell should have obtained a signed disclaimer from Dr Robson if she rejected debt repayment advice in search of a small income boost.

Liverpool Victoria speedily agreed with us. It said: "Although it is unclear from all the evidence whether Dr Robson decided independently not to pay off her mortgage, or took the decision as a result of advice received, we are not satisfied her attitude to risk was in line with the advice, especially as the need for capital protection seems to have been evident."

Liverpool Victoria will now encash her bonds and pay her a further £22,239.92, so she will get her full £49,000 back. And it will let her keep the income she has received, equal to a further £20,000, instead of paying interest - equal to a £4,000 plus gain.

"I'm going to spend my £49,000 nearly all in one shop - the building society," Dr Robson says. "I'm using £47,000 to clear the mortgage I should have paid off five years ago."